Key Performance Indicators

KPI

Background

The term KPI has become one of the most over-used and little understood terms in
business development and management. In theory it provides a series of measures
against which internal managers and external investors can judge the business and how
it is likely to perform over the medium and long term. Regrettably it has become
confused with metrics – if we can measure it, it is a KPI. Against the growing
background of noise created by a welter of such KPI concepts, the true value of the
core KPI becomes lost.

The KPI when properly developed should be provide all staff with clear goals and
objectives, coupled with an understanding of how they relate to the overall success of
the organization. Published internally and continually referred to, they will also
strengthen shared values and create common goals.

What are the key components of a KPI?

The KPI should be seen as:

Only Key when it is of fundamental importance in gaining competitive advantage and is

a make or break component in the success or failure of the enterprise. For example, the
level of labour turnover is an important operating ratio, but rarely one that is a make or
break element in the success and failure of the organization. Many are able to operate
on well below benchmark levels and still return satisfactory or above satisfactory results.

Only relating to Performance when it can be clearly measured, quantified and easily
influenced by the organization. For example, weather influences many tourist related
operations – but the organization cannot influence the weather. Sales growth may be an
important performance criteria – but targets must be set that can be measured.

Only an Indicator if it provides leading information on future performance. A

considerable amount of data within the organisation only has value for historical
purposes – for example debtor and creditor length. By contrast rates of new product
development provide excellent leading edge information.

Obviously KPI's cannot operate in a vacuum. One cannot establish a KPI without a clear
understanding of what is possible – so we have to be able to set upper and lower limits
of the KPI in reference to the market and how the competition is performing (or in the
absence of competition, a comparable measurement from a number of similar
organizations). This means that an understanding of benchmarks is essential to make
KPI's useful (and specific to the organization), as they put the level of current
performance in context – both for start ups and established enterprises – though they
are more important for the latter. Benchmarks also help in checking what other
successful organizations see as crucial in building and maintaining competitive
advantage, as they are central to any type of competitive analysis.

Start with what you need to measure and monitor

Different organizations need to monitor different aspects of their environment. For

example, the airline industry has a complex set of issues many of which (but not all) are
different from the dairy farmer. Ibis has created a number of separate business
monitoring modules for medium sized companies which we believe cover the majority of
requirements for the development and maintenance of their organization, that are part
of a bottom up planning system based around knowledge centres.

Knowledge centre Focus of activity Possible KPI

Administration Leadership, planning and monitoring, PEST elements, budget
balanced scorecard, budgeting, ratio, high impact/ high
portfolio theory, golden circle, decision probability assumptions
making, creativity, SCORE, corporate and boundary conditions
governance, territorial imperative, (strategic risk
impact analysis, standard operating assessment), CGAL,
procedures, mosaic management, contractual, portfolio risk
prioritization, trade offs, MBO, levels, % hurdle rate,
succession planning, quality circles, insurance costs/sales,
technology audit, vision statement, BEV, capital spread ratio,
SBU decisions, Abacus principle, time cost per sqm or cost per
keeping, barriers to entry, critical employee for facilities total
success factors, business model, space, productive hours
legacy issues, successes failures/ %, % meeting time, BS
lessons learnt, authority/ responsibility, index, utility cost, noise,
recruitment appraisal, acquisitions, accidents, % outsourcing,
cascade investment, disposals, complaint resolution
premises review, stakeholder speed, complaint
relationships, trade associations, resolution cost, average
synergy, recruitment appraisal, risk meetings/ month, utility
management, planning effectiveness, cost/ market cost ratio,
legal, health and safety, SBS, utilities, premises cost/ market cost
insurance, security, design for ratio, space utilization,
operating efficiency, time study, whistle blowing,
complaints, pensions, share options, temperature, noise, health
employee share savings schemes, and safety breaches,
creativity, fringe benefits, bonus security breaches,
systems, secrecy, meeting document loss, pension
management, time management, cost cost, theft, AER, budget
cutting, facilities management, stress, ratio, KFR, project
forecast grid, trade offs, success, certification,
communication, investment appraisal, wages ratio, litigation,
 health and safety, environmental audit, internal service
ISO 9000, ISO 14000, operating satisfaction levels,
financial review (OFR), working effective headcount, %
conditions, employee suggestion, team mentoring
building, training, internal service
satisfaction
Finance Planning and monitoring, balanced Financial ratios, budget
scorecard, budgeting, cash flow, profit ratio, % outsourcing, FER,
and loss, balance sheet, successes BEV, BEV/EBITDA, debt
failures/ lessons learnt, trade offs, age, cost of finance,
MBO, mosaic management, capital allocation ratio,
prioritization, IFRS, GAAP, succession capex, EFT%, CER, tax
planning, accounting assumptions, charge, SPT %, gross
technology audit, SCORE, decision yield, P/E,PEG, EPS,
making, creativity, quality circles, asset project success, DER%,
register, invoicing,profitability, activity, BDR, FCF, overdue
and liquidity ratios, revaluation accounts, productive
accounting, fraud, capital allocation hours %, market dynamics
profile, James' rule, contingent capital allocation, EBITDA
liabilities, deferred consideration, cost currency/ debt currency
capitalization, brand accounting, cost ratio, sales tax rate %,
cutting, payment systems, trade offs, cash interest rate%,
documentary credits, time keeping, depreciation %, internal
dividend policy, cash management, service satisfaction levels,
currency management, sales tax, effective headcount, %
depreciation, synergy, recruitment mentoring
appraisal, funding options, financial
reporting, audit, cascade investment,
recruitment appraisal, source and
application of funds, sensitivity
analysis, investment appraisal,
convertibles, tax management, credit
management, hedging, team building,
time management,training, internal
service satisfaction
Marketing/ sales Planning and monitoring, balanced CLV, budget ratio, market
scorecard , budgeting, portfolio share by segment, trial
analysis, trade offs, MBO, successes rate, competitive score,
failures/ lessons learnt, succession sales by channel, %
planning, recruitment appraisal, repeat purchase, average
mosaic management, prioritization, sales value, sales
technology audit, SCORE, decision productivity, market share,
making, creativity, market drivers, advertising productivity by
marketing mix, branding, Single Block channel, cost per lead,
Theory, entrants, substitutes, market cost per converted lead,
research, customer panel, sales bid success rates, range
 channels, distribution channels, sales sale%, average discount,
management, investment appraisal, service call out times,
call centres, marginal profitability, productive hours %,
quality circles, customer loss, enquiry response time,
products/services (width/depth), cross seasonality ratio, price
selling, value chain, expectation index, customer
fulfillment gap, market size, customer satisfaction, advertising
transition, seasonality, networking, awareness, % branding %,
price elasticity, cascade investment, customer investment
pricing terms and conditions, review, customer transition
quantitative analysis, customer rate, value chain, %
satisfaction, reference sale, time outsourcing, MER, budget
keeping, synergy, pricing power, cost ratio, EGMG ratio,
cutting, market spread, customer customer investment
investment review (CIR), marketing return, customer churn,
myopia, product age spread, complaints, warranty
organizational buyer behaviour, claims, project success,
reference sale, customer spread, channel members, product
product age, competitive advantage, positioning variance, SER,
competitive bidding, trade offs, AER, pricing, price
negotiation, recruitment appraisal, elasticity, country spread,
game theory, channel management, seasonality ratio, customer
customer care, complaints, warranties, spread, product spread,
mystery shopper, time management, product age spread ratios,
branding, team building, training, segmental leadership,
internal service satisfaction TDA's, project success,
CIR%, competitive bidding
success %, internal
service satisfaction levels,
effective headcount, %
mentoring
Production/logistics/ Planning and monitoring, balanced Cost variances, budget
service delivery scorecard, budgeting, successes ratio, order processing
failures/ lessons learnt, standard cycle, production cycle
costing, activity based costing, trade times, downtime, %
offs, MBO, succession planning, outsourcing, PLER,
mosaic management, prioritization, budget ratio, STR,
investment appraisal, design for capacity utilization,
operating efficiency, JIT, logistics cost, SPC, load
FMS,technology audit, SCORE utilization, failure rates,
including cost cutting, decision making, return on plant, space
creativity, production efficiencies, PLM, utilization, set up time,
aggregate demand policy, synergy, waste rates, pollution
management accounting, OR, levels, emergency
suppliers, supply chain management, delivery, out of stock %,
MRP, backorder, time keeping, obsolescent stock %,
 inventory levels, production equipment recycling%, back order %,
age, quantitative analysis, design, JIT% energy efficiency
sophistication, capacity, TQM, TPM, ratio, peak capacity %,
waste management, condition supplier ratio, partnering,
monitoring, recycling, complaints, obsolescent stock, EOQ,
technical support, recruitment number of suppliers,
appraisal, distant data capture, supplier spread ratio,
distribution structure (warehousing, number of components,
outlet location) and physical emergency call out,
distribution management, obsolescent delivery failures,
stock, cascade investment, time based productive hours %, E-
competition, time management, quality enablement, vendor rating,
circles, order processing, trade offs, project success, internal
scheduling, purchasing, recruitment service satisfaction levels,
appraisal, vendor ranking, networking, effective headcount, %
postponement, standardization, mentoring
product/ service design, team building,
training, internal service satisfaction
Personnel Planning and monitoring, balanced Productivity, budget ratio,
scorecard, budgeting, successes turnover, absenteeism, %
failures/ lessons learnt, trade offs, outsourcing (temporary
MBO, succession planning, mosaic staff ratio), PER, budget
management, prioritization, quality ratio, labour cost%, wages
circles, Noah principle, decision ratio, CNCER, employee
making, creativity, technology audit, satisfaction levels, CH/WH
SCORE, eight "S", absenteeism, ratio, overtime%, skills,
timekeeping, trade offs, overtime, training, discipline,
industrial relations, stress, bonus disputes, appeals,
systems, training needs analysis, time timekeeping ratio,
keeping, recruitment appraisal, time apprenticeship,
management, team building, cost recruitment costs, training
cutting, cascade investment, wages, days, productive hours %,
employee record keeping, synergy, whistle blowing, span of
vacation planning, training, internal control, appraisals, wages
service satisfaction ratio, diversity index, PDP,
project success, internal
service satisfaction levels,
effective headcount, %
mentoring
IT Planning and monitoring, balanced Management information
scorecard , budgeting, successes system functionality,
failures/ lessons learnt, trade offs, productivity, budget ratio,
MBO, investment appraisal, stability, web hits, access
succession planning, mosaic speed, site downtime, site
management, prioritization, data click through, productive
mining, technology audit, SCORE, hours %, Intranet,
 decision making, creativity, Intranet, Extranet, % outsourcing,
Extranet, trade offs, ITER, budget ratio,
telecommunications and IT platform, security breaches, data
management information systems storage, EDI, web
(MIS), web design and management, position, quality of data,
cloud computing, systems, time information overload,
management, synergy, recruitment project success, internal
appraisal, SEO, information flow map, service satisfaction levels,
security, mystery shopper, teleworking, effective headcount, %
cascade investment, quantitative mentoring
analysis, cost cutting, time keeping,
systems analysis, team building,
training, artificial intelligence,
quantitative analysis, modeling,
encryption, recruitment appraisal,
internal service satisfaction
Product/ service Planning and monitoring, budgeting, Product age spread, R&D
development innovation matrix, balanced scorecard, %,ideas, strategic fit,
mosaic management, prioritization, budget ratio, protocol
successes failures/ lessons learnt, score, total cycle time,
trade offs, MBO, succession planning, project review, team
investment appraisal, TBC, technology creation, testing, %
audit, SCORE, quality circles, decision outsourcing, NPDER,
making, recruitment appraisal, budget ratio, license fees,
creativity, product age profile, period of IPR%, IPR infringements,
grace, tradeoffs, halo effect, IPR maintenance costs,
identification of new product/ service royalty rate %, time,
concepts, synergy, cannibalization, productive hours %,
protocol, IPLC, certification, cascade budget, specification,
investment, technology transfer, first project success, internal
mover advantage, time management, service satisfaction levels,
recruitment appraisal, IPR, successful effective headcount, %
development/ commercialization, team mentoring
building, training, internal service
satisfaction
Contingency planning Authority and responsibility, planning Risk score, response
and monitoring, budgeting, successes times, budget ratio, KFR,
failures/ lessons learnt, creativity, % outsourcing, % SOP, %
SCORE, investment appraisal, training, % above/below
assumptions, high risk/high probability, barrier conditions, success
Black Swan theory, failure points, rates, % budget
reducing potential for failure, setting
trigger points, action plan, risk profile,
stage gate, team building,
communication, training, TEWT,
simulations, role play, impact analysis
 Establish current performance, benchmark and target levels

For each monitoring module, one can then establish what the current level of
performance is in a measurable and understandable way. This is the current
performance. From industry sources, the benchmark level can normally be introduced
(getting to benchmarks is often a difficult process and one requiring a mixture of low
cunning and/or sophisticated analysis). Then a target level of achievement can be
entered. Let us take an example of a financial management module for an established
manufacturing company and what it will tell us. 

Financial knowledge centre monitoring components

Factor Current Benchmark Target

Gross profit % 68 52 72
ROCE % 13 10 20
FCF 12 n/a 10
BEV/EBITDA 0.2 n/a 0.2
Gearing (DER) 15 38 15
Debt age (years) 8.5 6.3 10
Interest cover X 8.3 3.7 10
AER % 8 12 6
SER % 10 12 6
Debtor length (days) 102 95 60
Creditor length (days) 60 63 60
Stock turn/year 5 4 8
Current ratio 4 3 4
Budget ratio 95 n/a n/a
Capex ratio 8 4 7
WCR 1.7 3.2 1.7
Z score 3 7 3
Tax charge % 12 19 10
Depreciation % 15 12 n/a
Cost of finance % 3 8 3
EFT 82 n/a 88
Overdue accounts % 2 n/a 1
STP% 92 n/a 95
FER% 3 n/a 2.6
Project success ratio 90 n/a 90
Internal satisfaction level % 67 n/a 90
Effective headcount % 64 n/a 75
 We can gain an enormous amount of information and control from such a chart, but
obviously not all components will meet the criteria of being a KPI – otherwise we are
back into the problem of measuring everything and not concentrating on a limited
number of core criteria.

Add KPI project control elements

This ratio based analysis is combined with a review of individual projects – normally
based around the three key performance criteria, whether the project is on time, on
budget and on specification. For projects involving significant expenditure the
measurement of stage gate components will also significantly add to the level of control
at a knowledge center level.

An example from the same knowledge centre would look like this:

Project Due date On time On budget On spec Stage gate

Debt August Yes Yes Yes None
refinancing
Tax review September Yes Yes Yes None
Sales August Yes Yes Yes None
insurance

How do I use such a format to develop and understanding of what is a KPI?

As different individuals and organisations will put a different emphasis on each item of
information a definitive list of what is and what is not a KPI will depend on individual
decisions, and will vary considerably according to the stage of company development.
Start up enterprises need to place their emphasis on structural factors; established
companies on operational performance. 

However, one can set some guidelines. The most rapid way to establish the KPI within
any set of monitoring information is to work through the three criteria in sequence.

Is the control information key to the success of the organisation?

Can we measure it and influence it?
Does it provide leading edge indications of future developments?

Which measures in the above chart are key?

Gross profit is one key measure to the success of the organisation. Research shows
that survival rates are linked to levels of gross profit; gross profit margins above that of
the competition provide clear evidence of competitive advantage.

Return on capital employed is another key measure of the success of the organisation.
The ability to use investment effectively is central to effective long term development.
Z score is a measure of the liquidity of the enterprise and clearly defines positive or
negative trends.

It would be the Ibis argument that the other components of the chart are not key – they
are valuable items of information but are not make or break aspects of company
management (unless they are grotesquely different from benchmark values).

Are these performance measures – can we quantify them and influence them?

Yes

Do these provide leading edge indications of future performance?

Yes

The conclusion from this analysis is that in financial reporting the company should
concentrate on gross profit, return on capital employed and Z scores as their key
performance indicators. Both gross profit and return on capital employed are part of the
“model” balanced scorecard for overall objectives that Ibis propose for the majority of
enterprises as part of their planning platform.

Other components within the financial reporting module that might be considered as
KPI's are factors such as the levels of gearing (debt/ equity ratio – DER), project
success rates, bad debt rates, and free cash flow (FCF). Including time, budget and
specification to project reporting would also be a natural addition.

The balanced scorecard and KPI's

In addition to the creation of the enterprise balanced scorecard, in which gross profit,
return on capital and Z scores are standard elements, the identification of KPI's in each
of the operational areas or knowledge centres also assists the enterprise in plan
development. These KPI's will change over time, but their creation as part of the initial
creation of each knowledge centre will focus and direct their operational activities.

KPI's and the management information system

In a decentralised planning system focused around knowledge centers the choice of key
performance indicators is the first stage in the re-evaluation of the information system to
make it more valuable and relevant to the operating unit rather than one that is centrally
provided. 

Thus the choices of KPI determine what will drive that part of the enterprise and what
information must be collected to analyse and manage it. Such information gathering or
software choices create information networks that are relevant and provide data which
is used specifically for operational purposes, reducing information overload and
information for information sake.

Where else are KPI's valuable?

The KPI is central to a number of other elements in the planning platform which
provides the basis for answering the three crucial planning questions:

Where are we?

Where do we want to be (and when)?
How are we going to get there cost effectively?

In addition to the creation of knowledge centres and business monitoring, KPI's have a
vital role to play in:

Action planning and implementation with an emphasis on management by objectives

which will include a standardised rate of return and detailed project control;

Training as part of a company wide approach to focusing staff and management on

essential operational requirements;

Central to business planning as a core part of the business plan outline;

Identification of necessary actions in change management, exit planning and survival

and recovery planning;

They set priorities for investment appraisal, and the choice of emphasis that should be
given to the main strategies within the golden circle, consolidation (including cost
cutting), market penetration, ,market development and product development.

Training on key performance indicators, the creation of a business plan and standard
operating procedures is available from Ibis.

What is a Critical Success Factor?

Critical Success Factors (CSF’s) are the critical factors or activities required for ensuring
the success your business. The term was initially used in the world of data analysis, and
business analysis.

Most smaller and more pragmatic businesses can still use CSF’s but we need to take a different,
more pragmatic approach.

Critical Success Factors have been used significantly to present or identify a few key factors
that organizations should focus on to be successful.

As a definition, critical success factors refer to “the limited number of areas in which satisfactory
results will ensure successful competitive performance for the individual, department, or
organization”.
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Being Practical

As you read this and many other resources on the internet you will discover that there are
potentially a confusing variety of definitions and uses of Critical Success Factors.

Before you start the journey looking at CSFs it is important to realise that the specific factors
relevant for you will vary from business to business and industry to industry. The key to using
CSFs effectively is to ensure that your definition of a factor of your organizations activity which
is central to its future will always apply.

Therefore success in determining the CSFs for your organization is to determine what is central
to its future and achievement of that future.

This page is primarily written for students of management and business, to keep things simple
for application in smaller organizations remember to only have 5-7 critical factors for YOUR
organization, and I am sure one of those will be cashflow!

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How are they important to your business?

Identifying CSF’s is important as it allows firms to focus their efforts on building their
capabilities to meet the CSF’s, or even allow firms to decide if they have the capability to build
the requirements necessary to meet Critical Success Factors (CSF’s).

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Academic Background/ History

The principle of identifying critical success factors as a basis for determining the information
needs of managers was proposed by RH Daniel (1961 Harvard Business Review – HBR) as an
interdisciplinary approach with a potential usefulness in the practice of evaluation within library
and information units but popularized by F Rockart (1979 Harvard Business Review – HBR). In
time many academics have applied the methodology increasingly outside the educational
establishment.

The idea is very simple:

in any organization certain factors will be critical to the success of that organization, in the sense
that, if objectives associated with the factors are not achieved, the organization will fail –
perhaps catastrophically so.

The following as an example of generic CSF’s:

 New product development,

 Good distribution, and
 Effective advertising

Factors that remain relevant today for many organizations.

The actual development or history of the approach

With a phrase like Critical Success Factors having ‘common usage’ within technical
environments it is difficult to identify its true history in the context of business, management and
human resources.  One test for originality is the use of the TLA (Three Letter Acronym) of CSF.
And one of the earliest uses of this is by

Chief executives define their own data needs. By: Rockart, John F.. Harvard Business Review,
Mar/Apr79, Vol. 57 Issue 2, p81-93, 13p

In this earlier work:

MANAGEMENT INFORMATION CRISIS. By: Daniel, D. Ronald. Harvard Business Review,

Sep/Oct61, Vol. 39 Issue 5, p111-121, 11p

Ronald does not use the term CSF or even the phrase Critical Success factors, but does discuss
critical elements and non critical elements of a business leading to “controlling competitive
success” Daniel also uses the term “success factors” in the context that we would understand
today.

Predating these pieces is a short entry:

THE CASE STUDY METHOD AND THE ESTABLISHMENT OF STANDARDS OF

EFFICIENCY.By: Lebreton, Preston P.. Academy of Management Proceedings, 1957, p103-103,
1p

In which students looking into the efficiency of businesses for case studies are recommended to
look at “the factors which seem to be paramount in determining success in this industry” this is
bay far the earliest mention of what we today know as “Critical Success factors”

To our mind the first published work of this approach is by Rockart. This pages reproduced from
RapidBI.com

Other sources of research:

Management Control Systems: Text, Cases and Readings By Robert Newton Anthony, John
Dearden, Richard F. Vancil Published by R. D. Irwin, 1972 p151

This publication seems to be one of the earliest and widest cited books in the early days of CSFs.

10 problems that worry presidents. By: Spencer, Lyle M.. Harvard Business Review, Nov/Dec55,
Vol. 33 Issue 6, p75-83, 9p

In this article Spencer asks the question: “What are the essential factors that produce success in
my company?” which for 1955 is getting close to the beginnings of CSFs – so for those
interested in the early beginings worth a look.
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Types of Critical Success Factor

There are four basic types of CSF’s

They are:

1. Industry CSF’s resulting from specific industry characteristics;

2. Strategy CSF’s resulting from the chosen competitive strategy of the business;
3. Environmental CSF’s resulting from economic or technological changes; and
4. Temporal CSF’s resulting from internal organizational needs and changes.

Things that are measured get done more often than things that are not measured.

Each CSF should be measurable and associated with a target goal. You don’t need exact
measures to manage. Primary measures that should be listed include critical success levels (such
as number of transactions per month) or, in cases where specific measurements are more
difficult, general goals should be specified (such as moving up in an industry customer service
survey).
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Definitions

Critical Success Factor

an element of organizational activity which is central to its future success. Critical success
factors may change over time, and may include items such as product quality, employee
attitudes, manufacturing flexibility, and brand awareness. This can enable analysis.

Critical Success Factor

any of the aspects of a business that are identified as vital for successful targets to be reached and
maintained. Critical success factors are normally identified in such areas as production processes,
employee and organization skills, functions, techniques, and technologies. The identification and
strengthening of such factors may be similar. ..
Critical Success Factor (CSF) or Critical Success Factors

is a business term for an element which is necessary for an organization or project to achieve its
mission. For example, a CSF for a successful Information Technology (IT) project is user
involvement.

Using the term

The term “Critical Success Factor” is used differently, due to ambiguity of the word “critical”,
back and forth translations into other languages and interpretation when analyzed in portfolios:

1.
1. Definition 1: “critical” = important, key, determining, vital, strategic, etc.
2. Definition 2: “critical” = alarming, anxious, etc. (as shown within the diagram = top left):

Which ever definition you use. make sure that all managers understand the definition.

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Five key sources of Critical Success Factors

MAIN ASPECTS OF Critical Success Factors and their use in analysis

CSF’s are tailored to a firm’s or manager’s particular situation as different situations (e.g.
industry, division, individual) lead to different critical success factors. Rockart and Bullen
presented five key sources of CSF’s:

1. The industry,
2. Competitive strategy and industry position,
3. Environmental factors,
4. Temporal factors, and
5. Managerial position (if considered from an individual’s point of view). Each of these factors is
explained in greater detail below.

The Industry Industry: There are some CSF’s common to all companies operating within the
same industry. Different industries will have unique, industry-specific CSF’s
Critical success
factor An industry’s set of characteristics define its own CSF’s Different
industries will thus have different CSF’s, for example research into the
CSF’s for the Call centre, manufacturing, retail, business services, health
care and education sectors showed each to be different after starting with a
hypothesis of all sectors having their CSF’s as market orientation, learning
orientation, entrepreneurial management style and organizational
flexibility.

In reality each organization has its own unique goals so while thee may be
some industry standard – not all firms in one industry will have identical
CSF’s.

Some trade associations offer benchmarking across possible common

CSF’s.
Competitive strategy Competitive position or strategy: The nature of position in the marketplace or
and industry the adopted strategy to gain market share gives rise to CSF’s Differing strategies
position and positions have different CSF’s
Not all firms in an industry will have the same CSF’s in a particular industry. A
Critical success firm’s current position in the industry (where it is relative to other competitors
factor in the industry and also the market leader), its strategy, and its resources and
capabilities will define its CSF’s

The values of an organization, its target market etc will all impact the
CSF’s that are appropriate for it at a given point in time.
Environmental Environmental changes: Economic, regulatory, political, and demographic
Factors changes create CSF’s for an organization.
Critical success These relate to environmental factors that are not in the control of the
factor organization but which an organization must consider in developing CSF’s
Examples for these are the industry regulation, political development and
economic performance of a country, and population trends.

An example of environmental factors affecting an organization could be a

de-merger.
Temporal Factors Temporal factors: These relate to short-term situations, often crises. These CSF’s
may be important, but are usually short-lived.
Critical success
factor Temporal factors are temporary or one-off CSF’s resulting from a specific
event necessitating their inclusion.
Critical success
factor Theoretically these would include a firm which “lost executives as a result
of a plane crash requiring a critical success factor of rebuilding the
Critical success executive group”.
factor
Practically, with the evolution and integration of markets globally, one
could argue that temporal factors are not temporal anymore as they could
exist regularly in organizations.

For example, a firm aggressively building its business internationally

would have a need for a core group of executives in its new markets.
Thus, it would have the CSF of “building the executive group in a specific
market” and it could have this every year for different markets.
Managerial Position Managerial role: An individual role may generate CSF’s as performance in a
specific manager’s area of responsibility may be deemed critical to the success
Critical success of an organization.
factor
Managerial position. This is important if CSF’s are considered from an
Critical success individual’s point of view.
factor
For example, manufacturing managers who would typically have the
following CSF’s: product quality, inventory control and cash control.

In organizations with departments focused on customer relationships, a

CSF for managers in these departments may be customer relationship
management.

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How to write a good Critical Success Factor – CSF’s

In an attempt to write good CSF’s, a number of principles could help to guide writers. These
principles are:

 Ensure a good understanding of the environment, the industry and the company – It has been
shown that CSF’s have five primary sources, and it is important to have a good understanding of
the environment, the industry and the company in order to be able to write them well. These
factors are customized for companies and individuals and the customization results from the
uniqueness of the organization.

 Build knowledge of competitors in the industry – While this principle can be encompassed in the
previous one, it is worth highlighting separately as it is critical to have a good understanding of
competitors as well in identifying an organization’s CSF’s Knowing where competitors are
positioned, what their resources and capabilities are, and what strategies they will pursue can
have an impact on an organization’s strategy and also resulting CSF’s

 Develop CSF’s which result in observable differences – A key impetus for the development of
CSF’s was the notion that factors which get measured are more likely to be achieved versus
factors which are not measured. Thus, it is important to write CSF’s which are observable or
possibly measurable in certain respects such that it would be easier to focus on these factors.
These don’t have to be factors that are measured quantitatively as this would mimic key
performance indicators; however, writing CSF’s in observable terms would be helpful.

Develop CSF’s that have a large impact on an organization’s performance – By definition, CSF’s
are the “most critical” factors for organizations or individuals. However, due care should be
exercised in identifying them due to the largely qualitative approach to identification, leaving
many possible options for the factors and potentially results in discussions and debate. In order to
truly have the impact as envisioned when CSF’s were developed, it is important to thus identify
the actual CSF’s, i.e. the ones which would have the largest impact on an organization’s (or
individual’s) performance.

Finding information for writing Critical Success Factors (CSF’s)

For the organization following the CSF method, the foundation for writing good CSF’s is a good
understanding of the environment, the industry and the organization In order to do so, this
requires the use of information that is readily available in the public domain. Externally, industry
information can be sourced from industry associations, news articles, trade associations,
prospectuses of competitors, and equity/analyst reports to name some sources. These would all
be helpful in building knowledge of the environment, the industry and competitors. Internally,
there should be enough sources available to management from which to build on their knowledge
of the organization. In most cases, these won’t even have to be anything published as managers
are expected to have a good understanding of their organization Together, the external and
internal information already provides the basis from which discussion on CSF’s could begin.
The information mentioned above can largely be accessed through the internet. Other sources
which would be helpful, and not necessarily accessible through the internet, are interviews with
buyers and suppliers, industry experts and independent observers.

CSF as an activity statement:

A “good” CSF begins with an action verb and clearly and concisely conveys what is important
and should attended to. Verbs that characterize actions: attract, perform, expand, monitor,
manage, deploy, etc. (“poor CSFs” start with: enhance, correct, up-grade, …)
Examples: “monitor customer needs and future trends”

CSF as a requirement:

After having developed a hierarchy of goals and their success factors, further analysis will lead
to concrete requirements at the lowest level of detail

CSF as a key influence factor:

Some CSFs might influence other CSFs or factors such as markets, technologies, etc.
Such CSFs could be rephrased into “key influence factors” For example: “physical size” or
“trained staff”
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Key Performance Indicators (KPI’s) and Critical Success factors

A critical success factor is not a key Performance Indicator (KPI). Critical success factors are
elements that are vital for a strategy to be successful. KPI’s are measures that quantify objectives
and enable the measurement of strategic performance.
For example:

 KPI = number of new customers/ response time

 CSF = installation of a call centre for providing quotations

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A Critical Success Factor Method

Start with a vision:

 Mission statement
 Develop 5-6 high level goals
 Develop hierarchy of goals and their success factors
 Lists of requirements, problems, and assumptions
 Leads to concrete requirements at the lowest level of decomposition (a single, implementable
idea) Along the way, identify the problems being solved and the assumptions being made Cross-
reference usage scenarios and problems with requirements
 Analysis matrices
  Problems vs. Requirements matrix
 Usage scenarios vs. Requirements matrix
 Solid usage scenarios
 Relationship to Usage Scenarios
 Usage scenarios or “use cases”; provide a means of determining:
o Are the requirements aligned and self-consistent?
o Are the needs of the user being met as well as those of the enterprise?
o Are the requirements complete
 Results of the Analysis

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Using Critical Success Factors for Strategic and Business Planning

For other strategic business planning models please see our management models page

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Examples of Critical Success factors

Statistical research into CSF’s on organizations has shown there to be seven key areas.  These
CSF’s are:
 1. Training and education
2. Quality data and reporting
3. Management commitment, customer satisfaction
4. Staff Orientation
5. Role of the quality department
6. Communication to improve quality, and
7. Continuous improvement

These were identified when Total Quality was at its peak, so as you can see have a bias towards
quality matters.  You may or may not feel that these are right or indeed critical for your
organization.

The Critical Success Factors we have identified and us in the BIR process are captured in the
mnemonic PRIMO-F

1. People – availability, skills and attitude

2. Resources – People, equipment, etc
3. Innovation – ideas and development
4. Marketing – supplier relation, customer satisfaction, etc
5. Operations – continuous improvement, quality,
6. Finance- cash flow, available investment etc

Following is a sample list of the more common success factors.

This list should serve only as a guide to get you started. Some of these factors will be irrelevant
in a particular industry or competitive situation; others may need to be added, as appropriate.

The factors are grouped into three categories of organizational competency, you will use your
own differentiators.

Examples of Success Factors:

Understanding of Market:

 Sensitivity to changing market needs

 Understanding of how and why customers buy
 Innovative response to customer needs
 Consumer loyalty
 Linkage of technology to market demand
 Link marketing to production
 Investment in growth markets
 Knowing when to shift resources from old to new products
 Long-term view of market-development and resources
 Ability to target and reach segments of market
 Identify and exploit global market
 Product-line coverage
 Short time to market for new products
  Lack of product-line overlap
 Identification and positioning to fulfill customer needs
 Unique positioning advantage
 Strong brand image and awareness
 Understanding of competitors’ capabilities and decision rules
 Sensitivity to cues for co-operation
 Prevention of price wars
 Aggressive commitment when required
 Willingness to form inter company coalitions
 Maximizing payback from marketing response to resources

Marketing Variables:

 Distribution coverage, delivery speed, and prominence

 Co-operative trade relations
 Advertising budget and copy effectiveness
 Promotion magnitude and impact
 Sales force size and productivity
 Customer service and feedback
 High product quality
 Patent protection
 Low product cost
 Ability to deliver high value to user
 Large marketing resource budget

Decision making:

 Marketing research quality

 Information system power
 Analytic support capability
 Develop human resources
 Attract the best personnel
 Managerial ability and experience
 Quick decision and action capability
 Organizational effectiveness
 Learning systematically from past strategies

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Sample Critical Success Factor templates

Critical Success Factor analysis – Template 1

Critical Success Factors for __________________ Dated ____________

Critical Success Factor Source of CSF Primary Measures & Targets

Industry, Strategy,
Environmental, Temporal
[delete as appropriate]

Industry, Strategy,
Environmental, Temporal
[delete as appropriate]

Industry, Strategy,
Environmental, Temporal
[delete as appropriate]

Industry, Strategy,
Environmental, Temporal
[delete as appropriate]

Industry, Strategy,
Environmental, Temporal
[delete as appropriate]

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Critical Success Factor analysis – Template 2

Critical Success Factors for __________________ Dated ____________

Success Criteria Potential Benefit Approach

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Critical Success Factor analysis – Template 3

What do you want to be?

Vision / Mission / Strategic Goals / Critical Success Factors

Vision / Mission / Profile

What do we want to become / what is our purpose:

Mission:

Vision:
Strategic Goals

What do we have to do to get there:

Strategic Goal #1:

Outcomes / Critical Success Factors

How we will get there:

1.1

1.2

1.3

1.4

Strategic Goal #2:

Outcomes / Critical Success Factors

How we will get there:

2.1

2.2

2.3

2.4
2.5

Strategic Goal #3:

Outcomes / Critical Success Factors

How we will get there:

3.1

3.2

3.3

3.4

3.5

Strategic Goal #4:

Outcomes / Critical Success Factors

How we will get there:

4.1

4.2

4.3

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Critical Success Factor analysis – Template 4

What should you measure?

Measure Identification Worksheet

This worksheet is helpful in creating the list of measures to support each Critical Success
 Factor
Critical
Success
Factor

Measures

If yes,
Data
Is it a true Qualit
Supporti Owner Source? Targets Discard
indicator of Is Data y of
ng Definition (who’s If no, is Availabl ?
this CSF? Available Data?
Measure / Formula accountabl it e? Future?
What is it ? High /
Name e?) possible Yes / no Keep?
telling you? Low
to
collect?

Initiatives
/
Activities

Supporti Unit / Implementa Budget/  

Target
ng Person tion Team Target  
Completi
Initiative Responsib Member Start Date Resourc
on Date
/ Project le Assigned es

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Critical Success Factor & their analysis in projects

Research has shown that to complete a project successfully the following critical success factors
apply:

1. Match Changes to Vision

2. Define Crisp Deliverables
3. Business Need Linked to Vision
4. Have a Formal Process to Define Vision
5. Organizational Culture Supports Project Management

You can have all of the above elements, but if you lack an engaged and involved business
sponsor, your chances for success are greatly lessened.
According to a recent Gartner Institute study, 50% of all projects were delivered above schedule
and/or budget.

Many projects were delivered with significant functionality missing, often cancelled after
requirements definition.

In 2001, the Gartner group updated their research to include lack of executive sponsorship as a
major contributor to project failures.

According to a 2000 Standish Group Report, the top success factors for projects were as follows.
The list is in decreasing order of percentage factors responsible for success.
% – Success Factors

 18% Executive support

 16% User involvement
 14% Experienced project manager
 12% Clear business objectives
 10% Minimized scope
 8% Standard software infrastructure
 6% Firm basic requirements
 6% Formal methodology
 5% Reliable estimates
 5% Other criteria